Depreciation Rates for FY 2025-26 Under the Income Tax Act: Complete Guide for Businesses

Business owners need to know about tax deductions that can be used legitimately to reduce the gross income of their business as it relates to the cost of doing business. The Income Tax Act (1961), Section 32, provides businesses and companies with some of the best ways to reduce gross income through depreciation costs associated with asset depreciation due to business usage over time. To ensure a business has complied with the requirements of a tax audit, a business must apply a uniform depreciation method throughout a given accounting period to determine its taxable income for that accounting period. In the tax code, assets are classified into various classes/determining rates of depreciation. Classifying an asset into a specific class for depreciation makes it easy for the government to determine whether income has been overstated or understated, and whether the business’ actual liabilities are calculated correctly after all depreciation has been recorded. The main vehicles for these classes are the written down value (WDV) method of calculating depreciation, whereby assets within each class would depreciate together at the same rate each year. To change your year-end accounting result from a compliance issue to one that is used as a structured means of managing your business’ assets, one must understand what these statutory rates mean and how to apply them.

Understanding Capital Asset Depreciation

The financial structure helps you to offset the decreasing value of your commercial facilities against the yearly income from your operations. This allowable reduction will be shown on your profit or loss statements as a deduction for either the physical wear and tear of your equipment used to generate income or the age of your equipment.

All taxpayers can access this provision using two different structural options:

• WDV Approach: This remains the traditional method used in most commercial businesses.

• SLM Approach: This method is available only to corporations in the power industry or working on projects involving power transmission or electrical distribution.

In addition to the standard structural approaches, the IRS rewards specific investments made in the manufacturing sector through bonuses that can be taken the year that the asset is placed into service by the taxpayer and is only available to production and assembly facilities that meet specific regulatory requirements

Popular Depreciation Rates for FY 2025-26

Different types of enterprise property lose utility at vastly different speeds. The tax schedule categorizes typical business infrastructure into distinct percentage buckets to simplify administrative tracking. Here is a baseline overview of the standard depreciation rates assigned to everyday operational assets:

Operational Asset Group	Statutory Deduction Percentage
Commercial & Factory Buildings	10%
Corporate Furniture, Fixtures & Electrical Fittings	10%
Core Plant and Machinery Assets	15%
Computer Hardware, Systems & Allied Software	40%
Professional Reference Literature & Books	40%
Acquired Intangible Assets	25%

Comprehending the Block of Assets System

Tax asset depreciation operates based upon the concept of grouping. Instead of tracking individual chairs, computers or trucks as they lose value, assets are combined into one overall asset group. A group is a combination of various properties within an overall asset classification. All members of one group have the same rate of depreciation.

Grouping is done in two main categories—tangible and intangible assets:

• Tangible Assets: These are physical items such as real property, major industrial machinery, plant equipment and office furniture

• Intangible Assets: These are non-physical types of properties, such as knowledge of how to operate equipment, designs for patents, copyrights, trademarks, operating licenses and franchises.

Once the assets are put into a specific regulatory grouping, they no longer exist separately within the grouping for tax purposes. For example, the combined value of all items in that grouping will have the same set percentage of value reduction applied at the end of the accounting cycle.’

Statutory Conditions for Claiming Depreciation

A business cannot automatically qualify for an expense deduction just because they have an item in their place of business. Current legislation set by the Revenue Authorities establishes criteria that must be met to receive the legal deduction as follows:

• Legal Title: The tax filer must have either full or partial ownership of the asset that is being requested a deduction for.

• Commercial Integration: The asset is utilized in a way that contributes to the business or professional activity, if the asset is being used for both business purposes and personal use, the deduction available will be prorated according to the percentage of business use, with the taxation officer retaining the ability under Section 38 to determine what the specific allocation will be.

• Shared Ownership: Co-owners may claim individual deductions for the same asset regardless of how it was purchased by each co-owner, mapping their claims based on the ownership percentage of the co-owner's interest in the asset as verified.

• Specific Exclusions: Corporate good will and the original cost of land used for the business will not be eligible for a tax deduction.

• Mandatory Execution: Starting with the year 2002-03, the ability to request the deductions allowed above is no longer optional; therefore, even if the business does not enter the deduction in their internal books, the taxation office will calculate the deduction and reduce the asset's tax value accordingly.

• Presumptive Tax Regime: If the business operates under simplified presumptive taxation methods, the prescribed rate of profit for taxation purposes is calculations of tax have already incorporated the wear and tear of non-current assets.

• Separation from Corporate Laws: According to the Corporations Act 2001 (Cth), there is no requirement for the Income Tax Act to have the same percentages or requirements in their respective statutorily defined schedules. Any accounting entries made in your corporation’s books do not affect your obligation to comply with the Income Tax Act.

Deciphering Written Down Value (WDV) and Actual Cost

According to section 32(1), the statutory percentage of depreciation must be applied against the WDV of asset classes, with the referenced historical acquisition cost being the basis for establishing the WDV of any given asset group. The accuracy of your financial statements will be determined by the definitions developed below.

• First-Year Assets: The WDV for assets purchased during the relevant financial reporting period is equal to the actual purchase price.

• Subsequent-Year Assets: For assets recorded as of the end of an earlier financial reporting period, the WDV will equal the historical purchase price less the total amount of depreciation claimed against those assets in the previous year(s).

Strategic Timing: The 180-Day Regulatory Cutoff

The exact date an item enters active service changes the volume of tax relief accessible in that initial fiscal year. The tax department draws a sharp line based on operational duration:

• Full Deduction Allocation: Assets integrated into business operations for 180 days or longer within a single financial cycle receive the maximum percentage rate.
• Half Deduction Allocation: Items put to work for less than 180 days see their eligible deduction slashed by exactly 50% for that first year.

Let us review a practical, multi-block corporate tracking example to see how these asset calculation’s function side-by-side:

Asset Block Calculations Matrix

Operational Parameter	Block 1 (Machinery)	Block 2 (Furniture)	Block 3 (Motor Car)
Statutory Percentage Rate	15%	10%	15%
Opening Asset Value	₹0	₹0	₹0
Add: Purchases (≥ 180 Days)	₹5,00,000	₹20,000	₹0
Add: Purchases (< 180 Days)	₹40,000	₹0	₹3,00,000
Less: Sales Proceeds Realized	₹0	₹0	₹0
Pre-Depreciation Closing Base	₹5,40,000	₹20,000	₹3,00,000
Calculated Deduction Amount	₹78,000	₹2,000	₹22,500
Calculation Formula	(5,00,000×15%) + (40,000×15%×0.5)	(20,000×10%)	(3,00,000×15%×0.5)
Post-Depreciation Closing WDV	₹4,62,000	₹18,000	₹2,77,500

Straight-Line Method vs. Written Down Value Method

Operational lifespan expectations and computing methodologies diverge based on whether you are compiling internal corporate reports or filing statutory tax returns. The foundational divergence across regulatory frameworks is summarized below:

• Companies Act, 1956: Utilized explicit, predefined percentage parameters using both the Straight-Line Method and the Written Down Value Method.
• Companies Act, 2013: Transformed the approach by anchoring calculations to the verified useful life of assets, permitting Straight Line, Written Down Value, or Unit of Production methodologies.
• Income Tax Act, 1961: Relies strictly on predefined asset blocks via the Written Down Value approach, while reserving the Straight-Line Method exclusively for power-producing units.

The calculation formula for the Straight-Line Method follows this fixed trajectory:

Formula Type	Formula
SLM Rate of Depreciation	(Original Cost − Residual Value) ÷ Useful Life × 100
Annual Depreciation Deduction	(Original Cost × SLM Rate of Depreciation

Accounting Impact: AS-22 and IND AS 12 Integration

Because tax laws require different valuation methods than standard commercial ledgers, a natural imbalance arises in annual calculations. This variance creates a timing gap that must be reflected in corporate financial reports as either a deferred tax asset or a deferred tax liability.

Under Accounting Standard-22, these figures capture the future tax consequences triggered by temporary differences between the book value of an asset on the balance sheet and its official tax base.

Consider this mathematical scenario:

• Asset Purchase Cost: ₹150
• Current Internal Ledger Value: ₹100
• Accumulated Tax-Based Depreciation: ₹90
• Corporate Tax Rate: 25%

To determine the official tax base under these rules:

Particulars	Amount
Historical Cost	₹150
Less: Accumulated Tax Depreciation	₹90
Tax Base	₹60

To recover the recorded book value of ₹100, the business must generate ₹100 in taxable income, but it can only claim a tax deduction of ₹60. This mismatch leaves a taxable temporary difference of ₹40. Consequently, the enterprise recognizes a clear deferred tax liability of ₹10 (which is 25% of ₹40) to balance the books for future payments.

Exhaustive Chart of Depreciation Rates

The official schedules categorize physical and non-physical properties into specific, highly granular classes. The following comprehensive breakdown defines the statutory allowances available under current income tax rules:

Part A: Tangible Assets

I. Buildings

1. Residential structures, excluding commercial hotels and boarding houses: 5%
2. Standard corporate properties, administrative offices, and industrial factories not covered by alternative categories: 10%
3. Specialized infrastructure built on or after September 1, 2002, housing water treatment installations or water supply projects serving public infrastructure networks under Section 80-IA: 40%
4. Temporary structures, including wooden field offices or transient construction sheds: 40%

II. Furniture and Fittings

1. General office furnishings, structural fittings, and integrated electrical distribution networks: 10%

III. Plant and Machinery

1. Standard industrial machinery and operational plant assets not covered by specific exceptions: 15%
2. Private motor vehicles, excluding commercial transport or rental fleets, deployed on or after April 1, 1990: 15%
3. Private motor vehicles bought between August 23, 2019, and April 1, 2020, provided they entered active service prior to April 1, 2020: 30%
4. Commercial aircraft, aviation machinery, and aero engines: 40%
5. Motor taxis, commercial buses, and freight lorries running a rental or transport business: 30%
6. Commercial transport vehicles (buses, lorries, taxis) bought between August 23, 2019, and April 1, 2020, and put to use before April 1, 2020: 45%
7. Heavy commercial vehicles bought between October 1, 1998, and April 1, 1999, integrated into business operations prior to April 1, 1999: 40%
8. New commercial vehicles bought between October 1, 1998, and April 1, 1999, to replace a condemned vehicle older than 15 years: 40%
9. New commercial vehicles bought between April 1, 1999, and April 1, 2000, replacing decommissioned vehicles older than 15 years: 40%
10. New commercial fleets bought between April 1, 2001, and April 1, 2002, or specialized cargo vehicles bought and used between January 1, 2009, and October 1, 2009: 40%
11. Production molds deployed within rubber production or plastic product manufacturing plants: 30%
12. Specialized semiconductor manufacturing machinery, including advanced integrated circuit systems (SSI to LSI/VLSI) and discrete semiconductor components like diodes, triacs, thyristors, and transistors: 30%
13. Industrial glass-melting infrastructure, including direct-fire furnaces: 40%
14. Mineral oil extraction field assets (above-ground production tools and distribution systems, including returnable packaging): 40%
15. Sub-surface mineral oil field installations, excluding roadside fueling pumps, tanks, and connected fittings: 40%
16. Standard onshore oil wells not covered under specialized distribution blocks: 15%

IV. Environmental, Medical, and Energy-Saving Equipment (All Rated at 40%)

1. Air Pollution Control Systems: Advanced felt-filter setups, electrostatic precipitators, industrial gas scrubbers (counter-current, packed bed, venturi, and cyclonic models), dust collection machinery, evacuation equipment, and automated ash handling systems.
2. Water Pollution Control Installations: Aerated detritus chambers, mechanical screening units, skimmed grease and oil removal systems, chemical feed systems, mechanical reactors, activated sludge/diffused air units, biological filters, aerated lagoons, air floatation systems, methane recovery anaerobic digesters, steam/air stripping systems, marine outfalls, urea hydrolysis equipment, and activated carbon columns.
3. Solid Waste Management Tools: Resource recovery networks, solid waste recycling systems, and chemical recovery plants for cryolite, minerals, lime, caustic, or chrome.
4. Life-Saving Medical Technologies: DC defibrillators for internal use, cardiac pacemakers, color doppler systems, hemodialysis units, cobalt therapy machinery, vascular angiography networks, heart-lung systems, SPECT gamma cameras, magnetic resonance imaging (MRI) tunnels, ventilators (both standalone and integrated anesthesia models), surgical lasers, gamma knives, and advanced fiberoptic endoscopes (including resectoscopes, arthroscopes, peritoneoscopes, and bronchoscopes).
5. Energy Efficiency and Thermal Systems: Fluidized bed boilers, continuous pusher furnaces, high-efficiency boilers, automatic electrical load monitors, infrared thermography tools, digital heat loss meters, microprocessor control systems, exhaust gas analyzers, waste heat recovery recuperators, heat pumps, co-generation turbines, synchronous condensers, shunt capacitors, and time-of-day (TOD) energy meters.
6. Renewable Energy Systems: Solar collectors (pipe-type, concentrating, flat-plate), solar cookers, solar water heaters, solar crop dryers, desalination systems, solar-photovoltaic panels, wind mills, and wind-driven electric generators.

V. Other Specialized Tangible Categories

1. Commercial glass or plastic containers serving as product refills: 40%
2. Textile processing, weaving, and garment machinery bought under the Technology Upgradation Fund Scheme (TUFS) between April 1, 2001, and April 1, 2004: 40%
3. Specialized wooden components used in artificial silk machinery, match factory frames, studio spotlight bulbs, clay or sand condensers for salt works, and heavy mining ropes or safety lamps: 40%
4. Professional reference libraries and annual publications owned by a practitioner or a commercial lending library: 40%

VI. Shipping Assets

1. Ocean-going vessels, including deep-sea tugs, survey launches, dredgers, barges, and wooden-hulled fishing vessels: 20%
2. Inland water transport vessels, including commercial speedboats: 20%

Part B: Intangible Assets

1. Intellectual property rights, including acquired franchises, trademarks, design patents, operational licenses, copyrights, commercial know-how, or similar business rights: 25%

If your business is looking to map out its liabilities under the updated rules or requires specialized professional support, you can connect directly with verified experts at Legaldev to maximize your tax filings.

Summary of Key Provisions

To maintain compliance and protect your bottom line, keep these three core principles in mind:

• Block Consolidation: Property items lose their individual identities and must be calculated collectively based on their assigned asset blocks and percentage rates.
• The 180-Day Rule: The exact date an asset enters service dictates your first-year deduction volume, splitting the allowance in half if it falls short of the 180-day operational mark.
• Mandatory Application: These deductions are fixed by law; the government drops your asset's written down value even if you omit the entry from your filings.

Review your asset register today to ensure every corporate property is mapped to its correct category under the current depreciation rates framework.

Frequently Asked Questions

What happens if a business asset is utilized for less than 180 days in a financial year?

When an asset is integrated into corporate operations for a duration spanning less than 180 days within a single fiscal cycle, the allowable tax deduction is cut in half. The business can only apply 50% of the standard statutory rate to that item's purchase value for that initial year.

Are corporations allowed to skip claiming depreciation if they face financial losses?

No. Under the current rules of the Income Tax Act, claiming these deductions is completely mandatory rather than optional. The revenue department will calculate the reduction in asset value and lower your official Written Down Value regardless of whether you choose to claim it on your return.

How does the tax code treat depreciation calculations for land and corporate goodwill?

Both raw commercial land and corporate goodwill are completely excluded from these tax provisions. The structural framework dictates that these specific assets cannot be included in any block, meaning they are ineligible for any standard percentage write-offs.

Can a power generation company use different methods to calculate tax-based depreciation?

Yes, power generation and distribution enterprises have a unique choice. They can calculate their deductions using either the standard Written Down Value method or choose the Straight-Line Method, provided they lock in this decision before their official tax return filing deadline.

How does a business handle deductions for an asset that has multiple joint owners?

In cases of shared ownership, the total asset value does not get claimed by a single entity. Instead, each individual co-owner calculates and claims a deduction proportional to their verified financial stake in that property.